Release Date: February 07, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kansai Nerolac Paints Ltd (BOM:500165, Financial) reported a 1.5% increase in top-line revenue, a 2.9% rise in EBITDA, and a 7.2% growth in PAT before exceptional items, showcasing resilience amidst market challenges.
- The company has successfully introduced over 20 new products this year, with a focus on premiumization and Paint+, achieving double-digit salience in these categories.
- Kansai Nerolac Paints Ltd has expanded its presence in more than 80 towns for its project business, showing better growth compared to the industry.
- The company has made significant strides in the automotive sector, increasing market share through technologically superior products and sustainable technologies.
- Kansai Nerolac Paints Ltd has been recognized for its ESG efforts, being rated in the top 8% globally within the Chemical Industry Group in the CSA 2024 and winning the Golden Peacock Award for CSR in 2024.
Negative Points
- The putty segment has faced challenges with irrational pricing and declining demand, impacting the company's performance in this area.
- Despite efforts, the decorative segment experienced a low single-digit degrowth in value, indicating challenges in maintaining growth in this segment.
- The company faces intensified competition in the market, with new entrants gaining 3% to 4% market share, leading to a redistribution of market share.
- Margins in the putty business are very low, with a risk of potential losses if the current pricing environment persists.
- The volume-value gap persists in the industry, with volume growth outpacing value growth, particularly due to low-priced products like putty.
Q & A Highlights
Q: Can you comment on the current situation in the putty industry, particularly regarding pricing and demand?
A: Pricing remains a challenge in the putty market, with companies struggling to realize better pricing due to built-up volumes and declining demand. We are maintaining a balance between growth and profitability, which has led to a negative impact on our putty sales. However, the project business continues to show good growth.
Q: How is the competitive scenario in the decorative segment, and what impact could potential acquisitions have?
A: The market takes time to build brand and distribution, and we haven't seen any disruptive innovation from new entrants. While there is some market share redistribution, we believe that the market is built on brand and distribution quality. Regarding potential acquisitions, the impact would depend on how the acquiring company manages the business.
Q: Are incumbents being forced to respond to higher rebates or incentives from new competition?
A: New competition is aggressive, but building a brand takes time. We focus on strengthening our customer value proposition rather than reacting to competition. While some market share may shift, we believe in the strength of our brand and distribution.
Q: What is the current market share in the auto refinish segment, and is single-digit growth sufficient?
A: Our market share in auto refinish is low single-digit, but we are focusing on premium segments and have been increasing our market share annually. We are targeting specific segments rather than the entire market.
Q: Why hasn't the real estate pickup translated into strong demand for paint players?
A: There may have been a preponement of demand post-COVID, and the current consumption slowdown is affecting discretionary items. However, we foresee a gradual recovery in demand, supported by government initiatives.
Q: What are your expectations for margins and growth in the decorative segment?
A: We aim to maintain margins in the 13% to 14% range, and our growth is sustainable due to successful execution of strategic initiatives. We expect this positive trend to continue.
Q: Can you provide insights into the geographic sales mix and distribution expansion?
A: We remain strong in North and East regions, and have improved performance in weaker markets through targeted initiatives. We have achieved double-digit distribution expansion and maintain a 75% penetration of tinting machines.
Q: What is the outlook for the decorative paints industry over the next five years?
A: We expect high single-digit growth, driven by increased penetration, formalization, and awareness. The industry has room for growth, and we anticipate a positive trend despite current challenges.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
